I have recently encountered several situations in which local governments are claiming, under ordinances they have enacted, that their liens and fines have “superpriority” status over existing mortgages, regardless of when the liens were recorded and whether or not the mortgage holder ever was given notice of the liens. It seems that these claims are being made more frequently as municipalities explore all possible sources for increased revenue.
Municipalities generally have authority to enact liens under Florida Statute Chapter 162 which, in itself, does not provide for priority of the municipal enforcement liens. However, many municipalities have enacted ordinances purporting to give their liens superpriority, or, the same priority as is afforded liens for unpaid real estate taxes. Until recently, there has been little case law on the subject of whether a municipality can create its own superpriority lien status. As a result, title insurers would not insure over these liens and this frequently resulted in mortgagees simply paying the liens off to allow subsequent sale of foreclosed property.
Municipal code enforcement liens are examples of the type of liens commonly at issue. With the real estate collapse, the number of outstanding code enforcement liens and the amount of the typical lien has greatly increased. In fact, I recently conferred with a client concerning a municipality’s claim that its code lien had priority over the bank’s mortgage. Moreover, the lien amount had reached $375,000!
The priority of code enforcement liens was squarely addressed in the 2011 case of City of Palm Bay v. Wells Fargo Bank, N.A. The 5th District Court of Appeal held in that case that the City of Palm Bay could not “…grant its code enforcement liens superpriority over a prior recorded mortgage…” The court noted that to do so would conflict with a statute that says priority of mortgages and other liens will generally (with certain exceptions) be decided by “first in time, first in right” meaning in the order in which they are recorded. Unfortunately for mortgage holders, the Palm Bay case has been appealed to the Supreme Court of Florida where it is now pending. At this point we do not know whether the ruling in that case will ultimately remain the law in Florida. Several entities have filed amicus briefs in the case including the Florida Bankers Association, the Florida Land Title Association and the Florida League of Cities. We will monitor the case and provide an update in a future post in The Florida Banking Law Blog.